Congress Passes War Funding Legislation With Small Business Tax Relief

Pushing to beat the Memorial Day weekend, the House and Senate passed legislation providing supplemental funding for the Iraq war on May 24, 2007. The legislation includes an increase in the minimum wage and a companion package of tax relief provisions focused on small business. The President was expected to sign the legislation on May 25, 2007.

The tax relief provisions include an extension and expansion of the Work Opportunity Tax Credit to include veterans and rural counties with declining populations; an increase and extension of the Code Sec. 179 expensing election; several provisions directed at the Hurrican Katrina Gulf Opportunity Zone; allowing the full tip credit in spite of the minimum wage increase; allowing the tip credit and Work Opportunity Tax Credit for AMT purposes; permitting businesses jointly owned by spouses to file as a sole proprietorship; and a package of provisions designed to help small businesses maintain S Corporation status.

To pay for the tax breaks, the legislation includes an increase in the kiddie tax age to children under age 19 and students under age 24; modifies the interest suspension rules when the IRS fails to give notice; eliminates certain requirements for collection due process hearings; permanently extends IRS user fees; and increases or creates new penalties.

The total projected price tag for the tax breaks is $4.8 billion, which is fully offset by the revenue raising provisions.